Why, according to the Banking School, is central-bank money better than bank money? What is its account of the hierarchy of money? This chapter will illustrate that the answer is paradoxically Chartalist, albeit in a residual manner. ‘Outside money’ is rendered by several stalwarts of the Banking School as ‘fiat’, defined by legal tender laws and/or monopoly grants to an issuing bank. A political theory of money, by contrast, bases the superior quality of central-bank money in its robust (political) mutualisation at scale.

The Banking School oddly agrees with Chartalism that legal tender laws drive hierarchy in money. We interpret this as being anchored in the former's argument that a qualitatively superior, ‘outside’ instrument is required to settle debts. For the Banking School, the law is not the ultimate source of the distinction between money and credit because the logic of debt settlement itself implies such a distinction. ‘Promises precede deliveries’ (Hicks, 1989), so transactions inherently proliferate chains of credit that only a qualitatively better ‘money’ can stop. The logic of hierarchy is inherent in debt which, in turn, is inherent in the economy itself.

This generates unstable dynamics that again requires hierarchy to manage. Ralph Hawtrey identified a constitutive tension between value and liquidity. Transactions proliferate credit, but the ‘inherent instability of credit’ pulls against a stable value of money. This incoherence can be managed ‘on banking principles’ – that is, through the hierarchy, by modulating banks’ survival constraint.

Reading the Banking School somewhat against its own grain, we can also see the more political elements of money—namely how political settlements are expressed in the configuration of the credit system (Bagehot, 1920 [1873]) and how money is linked to value (Hawtrey, 1919).

For a tradition of thought that emerged in eighteenth-century Britain out of real banking practice, this school of thought naturally considers the fact of outside or Chartal money as only the very beginning of the story (Arnon, 2011). For the Banking School, the credit system has its own sui generis dynamics built out of interlocking claims on outside money—dynamics that must be understood in all their interactive complexity if the system is to be managed.

Introduction

We examined coverage and content errors in the census data for Jammu and Kashmir (J&K) and discussed their administrative, legal and political contexts at different levels of aggregation. We found that the over-reporting of children (particularly male children), a large increase in the slum population and a large increase in the number of households between the houselisting and household phases of census in Kashmir explain several interconnected anomalies in the 2011 census of J&K, including the drop in the child sex ratio (CSR), the rise in the share of child population, the rise in the population share of Kashmir within the state and the drop in the corresponding population shares of the Jammu division and groups concentrated almost entirely in Jammu such as the Scheduled Castes (SCs). Further, errors in data on non-scheduled languages, dialects of scheduled languages and tribes were also examined and attributed to political mobilisation, unintentional misclassification and a large increase in the population of Generic Tribes. Even conservative estimates of politically motivated over-reporting of the headcount, which do not account for (a) the over-reporting in 2001 that manifested in the abnormal increase in mean household size of Kashmir and (b) the over-reporting of the population aged 10–14 years in 2011, suggest that the 2011 census overestimated Kashmir's population by about 10 per cent.

We argued that the inability of the government to conduct reliable censuses in Kashmir – reflected in the cancellation of the exercise on two occasions, ad hoc changes to the reference date in other censuses and the contested nature of the data – can be explained from three different perspectives.

Democratic sovereignty embeds national money securely in a national economy over a long time horizon. Yet, ironically, it also severely limits the tools of monetary management. Democracy's post-war rise destroyed the central bank's ability to sharply raise interest rates to stem a credit bubble as this would crash the economy (Polanyi, 2001 [1944]; Eichengreen, 1998). Without this commitment to crash the economy, global money markets became so destabilising that they had to be contained; post-war controls on global capital flows were the flipside of democracy (Ruggie, 1982).

The deregulation of the neoliberal era signalled a reversal, but democracy endured albeit weakened. ‘Privatised Keynesianism’ and a welfarist ‘politics of the governed’ in the Global North and the Global South, respectively, were required to keep a tentative social peace (Chatterjee, 2004; Crouch, 2011). Democracy still limited price-based control, but now deregulation dismantled non-price control, resulting in a substantial amplification of the inherent instability of credit. Money's inherent hierarchy was weaponised and therefore delegitimated. Instability and inequality eventually shattered the neoliberal peace, giving rise to our populist present.

Democracy therefore gives money durable scale while simultaneously limiting the set of feasible institutional arrangements. We conclude by suggesting that a democratic response to both the impairment and delegitimation of monetary governance would be to nationalise banking behind capital controls while, following Keynes, globalising ‘ideas, knowledge, science, hospitality, travel’. Democracy means nationalising banks and controlling capital flows. It does not mean narrow, exclusionary nationalism.

Collectives standing behind their money have a political choice: how do we configure a system that is inherently hybrid, hierarchical and unstable? What are our goals for this system? Do we want to maximise growth for the time being at the cost of inequality? How much instability do we tolerate in the service of this growth? How much pollution and intergenerational inequality are we willing to endure?

None of these are mechanically available, of course, but we can set the system in a direction with appropriate margins of safety. If these sound like questions for ‘fiscal policy’, it is because we are used to inhabiting a dichotomy set up by a political move to depoliticise ‘monetary policy’ as solely a technical exercise rather than an expression of politics through the design of monetary technicalities. Money is just government debt that does not mature and pays no interest. Just like government debt, it is a bet on a collective's future.

I was a child of reforms: I grew up in the 1990s and remember the constant delight of experiencing new things. My earliest memory of liberalization was the incursion of private cable television in Indian households in 1991 and getting access to international programming: sports, cartoons, and movies available at any time. I still have foggy memories of the 1980s when all of India would be sitting in front of the TV on Sunday mornings to watch Ramayan and Mahabharat – the previous generations were not entitled to a choice in entertainment. Choice and desire were a constant theme growing up. The personal computer arrived in households in the mid-1990s; I learned how to manipulate the keyboard and mouse to a higher degree of wizardry than any computer programmer could at that time. Then, in 1999, I visited the first multi-storey music store in Delhi: Planet M, where one could actually purchase original international albums in the same year they were released; no more illegal downloads from the internet or sneaky forays into the back alley of Pallika Bazaar – a haven of piracy located in the underbelly of central Delhi. The internet had seeped into Indian consciousness by now, and half of the country's city youth had discovered a new way of making friends and finding love hidden from the eyes of our parents. I visited my first mall in Delhi in 2002, something that I had heard about from friends who had made foreign trips. I still remember the thrill of just walking around in a shiny, air-conditioned building filled with the biggest brands that I could recognize – Nike, Adidas, McDonald’s, Crossword, Music World, Barista, and pubs. Last but not least came affordable cell phones, and before we knew it we had forgotten how people met in the times before cell phones, we had forgotten the endless arguments with our parents about using the phone all the time, and we survived many hours of boring class trying to create a new record on Snake. New things and choices were unheard of a generation ago, especially for the large part of the upper class who were dependent on a fixed income. I was constantly reminded by elders that life was very different before, they had to wait for years to get any kind of consumer durables – phone lines, cars, scooters, fridge.

This book was born out of more than a decade of research on understanding the contours of, and teaching a course on, the Indian economy for the last six years – more pertinently, a response to multiple discussions about the contemporary economy with people from a wide range of occupations from social activists, construction workers, shopkeepers, taxi drivers, and journalists; chance encounters with people in the upper management of multinational corporations; and the comments sections of discussions on Indian economic policy on social media. My interactions bore out two general observations: first, people are interested in understanding how the economy affects their lives – irrespective of the kind of work they do – and second, there is a serious dearth of accessible resources on the Indian economy.

In this book, I present an accessible history of economic policies in India from colonial to contemporary India. This book is meant to serve as a representative sample of important academic literature on the Indian economy organized thematically. It aims to provide a socio-historical narrative to explain economic policies in contemporary India. This work will be of particular value to readers who do not have a background in economics and might not have the time or inclination to read multiple works to understand a particular period or policy in Indian history. It can also serve as a complementary resource to a teacher as it provides a coherent and accessible narrative connecting different periods and different data sources, public documents, and academic literature that can be brought to the classroom.

I have been part of designing the economics curriculum at Azim Premji University (APU), Bengaluru. I believe that undergraduate economics education in India, especially in teaching economic theory, is abstract and focused on modelling and quantitative analysis; students are not well exposed to different trajectories of analysis within economics and complementary concepts provided by other disciplines like history, politics, and sociology. Other economics educators who I have interacted with have felt the same.* At APU, the economics curriculum has attempted to embed the historical, political, social, and intellectual within economic courses. The emphasis is on understanding theories within the context in which it was shaped. I start our Introduction to Economics class with the Industrial Revolution and explain how colonial intervention born out of the need for industrialization shaped the global capitalist economy.

The US credit system saw banks break out of public-minded control mechanisms; the inherent instability of credit was thereby amplified and crisis ensued. Control mechanisms have evolved precisely to configure the collective's exposure to the inherent instability of the credit system. Without them, the system is incomplete, unstable and tends to be undemocratic.

Yet at the global level, we have precisely such an incomplete, public–private-like hybrid system but without the attendant public element. The global system is therefore even more subject to capture and instability. The US’ national-economy–central-bank complex acts as a ‘private bank’ in the world economy but without a corresponding global central bank given the absence of a world state. There are therefore no global mechanisms to control global credit. Central banks issuing their own liabilities are to the global economy what Citibank issuing its own money would be to a national economy. The last attempt to erect such a private money system detached from central-bank control, namely American shadow banking, ended in disaster. Yet this is the very nature of the global credit system.

Non-state global institutions, either global markets or the IMF, fail at issuing world money because they lack robust mutualisation at scale. We therefore have a dilemma: if a sovereign provides world money, it is difficult to discipline, seeding global risk. If a non-sovereign provides world money, it will not be credible: only (some) sovereigns can do this. Following Charles Kindleberger, we argue that the international community needs to invent forms of global, non-state political mutualisation that could underwrite the rough equivalent of domestic control mechanisms, contain the ‘private bank’ that is the American Fed and contain the global system's contradictions. Permanent swap lines between core central banks already point in that direction, but they are mere fire engines at this point, lacking countercyclical pressure on the Fed.

How do we provide the global public good of monetary governance without a world state? There is no ‘world money’, no single instrument whose reserve asset is the entire world economy because without a world state, there is no fiscal means to tap into the entire world economy in one go. We have instead a small set of national monies tethered to substantial national economies functioning as global means of payment.